Buying a foreclosure is a great way to get a home for a cheap price. However, there are some pitfalls associated with going this route; one of which is the original owners can get their houses back even after the properties have sold using a little known statute. Here's what you need to know about this law and how to protect yourself.
About the Statutory Right of Redemption
All states let people buy their homes back from the bank before the foreclosure process concludes. However, a small portion also gives homeowners a grace period afterwards to buy their houses back, even if those homes have been purchased by new owners. This is called the statutory right of redemption, and this grace period can be anywhere from 30 days to 12 months.
To redeem the home, though, the homeowner must pay, all at once and up front, the entire purchase price plus any fees and interest. As you can imagine, hardly anyone has this type of cash. So this generally isn't an issue for the majority of people who purchase foreclosed homes.
In some cases, though, the homeowners come into a windfall. When that happens, there is a risk the new owners may find themselves ejected from a home they thought were theirs; a situation that can seem unfair even though they'll get their money back.
Protecting Yourself from the Right of Redemption
There are things you can do to avoid being evicted from a home you purchased. Before even making an offer, find out as much as you can about the previous owners. If it appears those people have completely given up on the home or do not have the means to buy it back (and unlikely to get the money in the redemption period), then you can go forward with your purchase fairly certain you don't have to worry about this issue.
The right of statutory redemption can be waived, so another thing you can do is contact the bank and ask whether the homeowner did so in the loan documents. The bank may not tell you about that specific owner due to privacy laws but may be able to tell you if it's a standard stipulation for their mortgage contracts. If the homeowner does try to come after you for the house, you can refer the person to their contract with the bank.
Some states will reduce the redemption period depending on the circumstances. In Arizona, for instance, the redemption period drops from 6 months to 30 days if the property was abandoned. In California, only homes that have gone through a judicial foreclosure are eligible for redemption.
For more information about this issue or help selecting a foreclosed home that doesn't have this type of baggage, contact a real estate agent.